Good morning, and welcome to Landstar System's First Quarter Earnings Release Conference Call. Today's call is being recorded. If you have any objections, you may disconnect at this time. Joining us today from Landstar are Frank Lonegro, President and CEO; Jim Todd, Vice President and CFO; Joe Beacom, Vice President and Chief Safety and Operations Officer. Now I would like to turn the call over to Jim Todd. Sir, you may begin.

Thank you. Good morning, and welcome to Landstar's 2024 First Quarter Earnings Conference Call. Before we begin, let me read the following statement. The following is a safe harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements. During this conference call, we may make statements that contain forward-looking information that relates to Landstar's business objectives, plans, strategies and expectations. Such information is by nature subject to uncertainties and risks, including, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2023 fiscal year described in the section Risk Factors and other SEC filings from time to time. These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated. Investors should not place undue reliance on such forward-looking information, and Landstar undertakes no obligation to publicly update or revise any forward-looking information. It's my privilege to pass to Landstar our CEO, Frank Lonegro, for his opening remarks.

Thanks, JT, and good morning, everyone. First, I want to express my sincere gratitude and excitement to lead this great company. I've had the pleasure of meeting so many of our network constituents over these past several months. At our annual agent convention in early April, I had the opportunity to interact with hundreds of agents with the entrepreneurial spirit that helps make Landstar successful. While they are all unique, these agents take great pride in what they do every day, helping move the freight that drives the American economy. They are a talented group of business owners, and I'm proud to be working alongside them to help Landstar grow. I've also been out on the road, meeting with many of our BCO owner-operators in Florida, Georgia, and Kentucky at our monthly safety meetings, field operations center visits, and at the Mid-America Trucking Show. I look forward to seeing our Million Mile Safe Driver and Road Star BCOs at the annual All-Star event in July, and know we share a common passion to safely deliver freight for our customers every day. I'm incredibly energized to work with our agents, BCOs, and carriers through our proven business model to continue Landstar's track record of success. I've also inherited a strong executive team at Landstar, and we've been actively working together to drive Landstar forward. I'm excited by the recent changes we made in our sales leadership, with Jim Applegate and Matt Dannegger. This combination of strategy and execution will serve Landstar and its agents well as we align for growth. While JT, Joe, and I will handle the call today, we'll be sure to showcase Jim and Matt on some of our future earnings calls. We are laser-focused on executing our strategic initiatives. Cross-border Mexico and heavy haul are two areas we have identified where we already have scale and believe we have significant opportunities for growth. We also remain committed to continuously improving the level of service and support we provide to our customers, agents, BCOs, and carriers each and every day. Turning to Slide 5. Landstar performed well in the 2024 first quarter, considering that the freight environment was characterized by soft demand and readily available truck capacity. I believe our results speak to the strength and resiliency of the Landstar business model. I am fully committed to fostering and safeguarding this unique model moving forward. Our balance sheet continues to be very strong. We remain committed to investing in leading technology solutions for our network of small business owners, and we'll be refreshing a significant portion of our trailing equipment fleet this year. Our capital allocation priorities remain unchanged. I'm a believer in the company's stock buyback program, and I'm committed to opportunistically executing on our existing authority to benefit our long-term stockholders. In the 2024 first quarter, the freight environment continued to be soft. Manufacturing levels trended below the level of the corresponding prior year period, and inflation continued to have an impact on consumer spending on goods. We remain in a loose truck capacity environment when measured by historical standards, and market conditions continue to favor the shipper. Even with that backdrop, Landstar's 2024 first quarter top line results were better than expected, and our earnings performance was generally in line with what we expected. I was pleased to see heavy haul loadings, which as mentioned above as one of our strategic growth priorities, grew 2% year-over-year. On the other side, our substitute line haul service offering declined more than the company average and continues to be soft after an incredibly strong run during the capacity constraint period coming out of the pandemic. Our first quarter guidance set forth in our 2023 fourth quarter earnings release call for the number of loads hauled via truck to be 14% to 16% below the 2023 first quarter and overall revenue per truckload to be 8% to 10% below the 2023 first quarter. The actual number of loads hauled via truck in the 2024 first quarter was 13% below the 2023 first quarter, slightly better than the high end of our truckload volume guidance. Actual revenue per truckload in the 2024 first quarter was 7% below the prior year quarter, again, slightly better than the high end of our guidance. The slightly favorable variance on revenue compared to guidance was mostly driven by a stronger fiscal February as fiscal January results were in line, and fiscal March came in slightly above our expectations. Turning to Slide 6 and looking at our network, the scale, systems, and support we provide drive the operating results generated during the 2024 first quarter. JT will get into the details on revenue, loadings, and rate for load, but I wanted to take a moment to touch on our agent community. I was very excited to meet many of our 524 Million Dollar Agents in Orlando earlier this month at the annual agent convention. This group of Million Dollar Agents collectively generated approximately 95% of Landstar's consolidated revenue during the 2023 fiscal year. Their relentless drive for results in any business environment is impressive. I've been in the transportation sector for most of my career, and realize how important Landstar's safety-first culture is to our continued success. Our safety performance is a direct result of the professionalism of the thousands of Landstar BCOs operating safely every day. Our continued investment in safety technology and trailing equipment, as well as our recruiting, qualification, and maintenance practices, are vital. I'm proud to report a 0.52 DOT accident frequency per million miles in the first quarter, which decreased approximately 12% as compared to the 2023 first quarter. This is an impressive operating metric that speaks to the strength, skill, talent, and dedication of our BCOs and provides a point of differentiation our agents are able to highlight in discussions with our freight customers. Turning to Slide 7 and the capacity side. BCO truck count decreased by 399 trucks in the first quarter on a sequential basis and has decreased approximately 13% since the end of the 2023 first quarter, consistent with the year-over-year decline in truckload volumes. It is typical to incur turnover in BCO truck count when truck rates decrease. BCO turnover continues to be influenced by the significant increase in the cost of repairs and the extended period of time that trucks are out of service awaiting repairs. We would expect the BCO count to continue to decline in the coming months given the rate environment, but at a slower pace than we saw in the first quarter.

Thanks, Frank. Frank has covered certain information on our 2024 first quarter, so I will cover various other first quarter financial information included in the press release and slide presentation. Turning to Slide 9. As Frank mentioned earlier, both the number of loads hauled by truck and truck revenue per load each slightly exceeded the high end of our previously issued guidance. Non-truck transportation service revenue in the 2024 first quarter was 12%, or $10 million, below the 2023 first quarter. The decrease in non-truck transportation revenue was mostly due to a 58% decrease in air revenue per shipment. As to the breakdown in Truck Transportation, revenue per load on loads hauled via unsided platform equipment held up considerably better in revenue per load than loads hauled via van equipment and other truck transportation services. We consider revenue per mile on loads hauled by BCO trucks a relatively pure pricing number, as it excludes fuel surcharges billed to customers that are paid 100% to the BCO. Revenue per mile on van equipment hauled by BCOs in the 2024 first quarter was 7% below the 2023 first quarter. Revenue per mile and unsided platform equipment hauled by BCOs in the 2024 first quarter was 5% below the 2023 first quarter. It should be noted that although the market has softened significantly from a year ago, Landstar's revenue per mile on BCO van and unsided platform equipment both remain above the pre-pandemic 2020 first quarter by approximately 21% and 23%, respectively. We believe that rates will stay relatively higher than pre-pandemic levels given the significant amount of incremental cost to operate a truck today as compared to five years ago. Revenue per mile on van equipment hauled by BCOs remained sequentially flat from December to January and from January to February before decreasing 2% in February to March. These December to January and January to February month-to-month changes are stronger than pre-pandemic typical patterns, with the exception of the beginning of 2018 when rates were favorably impacted by the mid-December 2017 ELD mandate. However, the sequential change in BCO revenue per mile on van equipment from February to March underperformed these pre-pandemic historical patterns. As to revenue per mile and unsided platform equipment hauled by BCOs, revenue per mile decreased 2% from December to January, increased 1% from January to February and increased 2% from February to March. The 2024 unsided platform volume trends are somewhat favorable as compared to typical pre-pandemic trends when excluding 2018 for the reasons mentioned above. Turning to Slide 10. We provided revenue share by commodity and year-over-year change in revenue by commodity. Transportation & Logistics segment revenue was down 19% year-over-year on a 13% decrease in loadings and a 7% decrease in revenue per load as compared to the 2023 first quarter. Within our largest commodity category, consumer durables, revenue declined 20% year-over-year on a 15% decline in volumes and a 6% decline in revenue per load. Revenue in our top 5 commodity categories, which collectively make up about 70% of our transportation revenue, were down a combined 17% compared to the 2023 first quarter. Shifting gears from revenue to loadings within the remaining top 5 commodity groupings, from the 2023 first quarter to the 2024 first quarter, total loadings of machinery decreased 15%. Automotive equipment and parts were relatively flat. Building Products decreased 2%, and hazardous materials decreased 14%. Additionally, substitute line haul loadings, one of the strongest performers for us through the pandemic and one which varies significantly based on consumer demand, decreased 36% from the 2023 first quarter. Also, Landstar is a truck capacity provider to other trucking companies, 3PLs, and truck brokers. During periods of tight truck capacity, those freight transportation providers reach out to Landstar to provide truck capacity more often than during times of readily available truck capacity. The freight hauled by Landstar on behalf of other truck transportation companies includes almost all our commodity groupings, including our substitute line haul service offering. Overall, revenue hauled on behalf of other truck transportation companies in the 2024 first quarter was 36% below the 2023 quarter, a clear indicator that capacity is more readily accessible. Revenue hauled on behalf of other truck transportation companies was 14% and 18% of transportation revenue in the 2024 and 2023 first quarters, respectively. Even with the ups and downs in various customer categories, our business remains highly diversified, with over 25,000 customers, none of which contributed over 6% of our revenue in the 2024 first quarter. Turning to Slide 11. In the 2024 first quarter gross profit was $113.9 million compared to gross profit of $152.9 million in the 2023 first quarter. Gross profit margin was 9.7% of revenue in the 2024 first quarter as compared to a gross profit margin of 10.7% in the corresponding period in 2023. In the 2024 first quarter, variable contribution was $168.2 million compared to $208.7 million in the 2023 first quarter. Variable contribution margin was 14.4% of revenue in the 2024 first quarter compared to 14.5% in the same period last year. The decrease in variable contribution margin compared to the 2023 first quarter was primarily attributable to a decreased variable contribution margin on revenue generated by truck brokerage carriers. As the rate paid to truck brokerage carriers in the 2024 first quarter was 149 basis points higher than the rate paid in the 2023 first quarter, partially offset by the mix, as an increased percentage of revenue was generated by BCO independent contractors, which typically has a higher variable contribution margin than revenue generated by other modes of transportation. Turning to Slide 12. Operating income declined as a percentage of both gross profit and variable contribution, primarily due to the impact of the company's fixed cost infrastructure, principally certain components of selling, general and administrative costs in comparison to smaller gross profit and variable contribution basis. Other operating costs were $14.9 million in the 2024 first quarter compared to $12.4 million in 2023. This increase was primarily due to an increased provision for contractor bad debt and decreased gains on the sale of used trailing equipment. Insurance and claims costs were $26.3 million in the 2024 first quarter compared to $27.6 million in 2023. Total insurance and claims costs were 5.8% of BCO revenue in the 2024 period and 5.3% of BCO revenue in the 2023 period. The decrease in insurance and claims costs as compared to 2023 was primarily attributable to decreased net unfavorable development of prior year claim estimates and a decreased accident frequency, partially offset by increased severity of accidents during the 2024 period. During the 2024 and 2023 first quarter, insurance and claims costs included $1.1 million and $1.9 million, respectively, of net unfavorable adjustment to prior year claim estimates. Selling, general and administrative costs were $56.4 million in the 2024 first quarter compared to $53.6 million in the 2023 first quarter. The increase in selling, general and administrative costs was primarily attributable to increased employee benefit costs and increased provision for incentive and equity compensation under our variable compensation programs and the impact of $1.2 million of CEO transition costs, partially offset by decreased project consulting costs. In the 2024 first quarter, the provision for compensation under variable programs was $4.6 million compared to $3.3 million in the 2023 first quarter. We'd like to note, despite some moderate wage inflation pressure and selective human capital investment in certain areas, principally heavy haul cross-border and fraud prevention, total wages from the 2023 first quarter to the 2024 first quarter declined slightly, as the company continues to be very disciplined with respect to managing headcount. Depreciation and amortization was $14.1 million in the 2024 first quarter compared to $15.2 million in 2023. This decrease was primarily due to decreased depreciation on the company's trailer fleet, partially offset by increased depreciation on software applications resulting from continued investment in new and upgraded tools for use by agents and third-party capacity providers. The effective income tax rate was 23.5% in the 2024 first quarter compared to an effective income tax rate of 23.3% in the 2023 first quarter, primarily attributable to larger net excess tax benefits from stock-based compensation arrangements during the 2023 first quarter. Turning to Slide 13 and looking at our balance sheet. We ended the quarter with cash and short-term investments of $530 million. Cash flow from operations for the 2024 first quarter was $94 million, and cash capital expenditures were $9 million. The strength of our balance sheet is a testament to the cash-generating capabilities of the Landstar model. Back to you, Frank.

Thanks, JT. As we progress through the 2024 second quarter, year-over-year comparisons should begin to ease. In the 2023 second quarter, the number of loads hauled via truck and truck revenue per load both significantly underperformed pre-pandemic seasonal patterns. In 2024, as we moved from March into the first few weeks of April, our truck volumes seem to have moved more in line with what we would view as normal sequential month-to-month patterns based on pre-pandemic seasonal performance trends. Truck revenue per load has slightly underperformed these pre-pandemic patterns, though the sequential week-to-week trends in truck revenue per load in the first 3 weeks of April have been favorable. Turning to Slide 15. Our year-over-year expectations for the 2024 second quarter are that truckload volumes will be 5% to 9% below the 2023 second quarter, and truck revenue per load will be in a range of flat to down 4% versus the 2023 second quarter. Looking at the 2024 second quarter on a sequential basis, pre-pandemic patterns would normally yield an 8% improvement in truckload volumes and a 2% improvement in truck revenue per load. Our guidance for the second quarter implies a 4% to 8% sequential improvement in truckload volumes and truck revenue per load ranging from down 1% to up 3% sequentially. We also expect revenue for our non-truck loads to be similar to what we experienced in the 2024 first quarter. Based on these assumptions, we expect revenue in the 2024 second quarter to be in a range of $1.2 billion to $1.3 billion, and earnings to be in a range of $1.35 per share to $1.55 per share. The 2024 second quarter guidance incorporates a variable contribution margin range of 13.9% to 14.2% and insurance and claims costs of approximately 5.5% of estimated BCO revenue. We also want to highlight some specific items embedded in the 2024 second quarter EPS guidance range of $1.35 per share to $1.55 per share compared to the 2024 first quarter actual EPS of $1.32 per share. First, SG&A in the second quarter is expected to be above the first quarter, due in part to the cost of Landstar's annual agent convention in April. Second, we expect variable contribution to be 20 to 50 basis points below the 2024 first quarter, which is in line with pre-pandemic historical sequential patterns. Third, the second quarter tax rate is expected to be approximately 100 basis points higher than the first quarter, in line with our normal tax rate assumptions, driving a $0.02 per share unfavorable variance compared to the first quarter. We also want to note that the company has widened the guidance range for both revenue and earnings per share. While these ranges reflect the fact that economic and freight conditions are still quite dynamic, we believe the strength and resiliency of the Landstar model position us well to successfully navigate this environment. With that, I'd like to open the line for questions.

We have the first question from Scott Group of Wolfe Research.

Frank, nice to speak with you again. You guys gave more color on some of the monthly trends. That was helpful, but it was going quick. So it sounded like March deteriorated. And then maybe, Frank, at the end, your comments around pricing in April were a little bit better. Maybe just a little bit more color on sort of what happened in March and what you're seeing in April?

Scott, thanks, and good to hear your voice again, for sure. We're watching this closely on a daily and weekly basis as you would imagine, just given the desire to see an inflection. And so what we don't want to do is over-index on a day or two. We want to look at the trends over time. The point I was making toward the end was the week-by-week view in April on rate was beginning to show some positivity. We're hopeful that this is the beginning of an inflection. It's not going to be a rapid rebound as maybe we saw in the immediate post-COVID time period, but a little bit of sign of green shoots is always helpful.

Yes. No, absolutely, Frank. So Scott, the good part top line to the model really was strong February. February versus the model was about plus 8%, as both the number of loads hauled via truck and truck revenue per load in February outpaced typical seasonality. March was about 3.5%, good guide to the model on the top line, but both loadings and revenue per load in March seasonally underperformed typical February to March, again, off a stronger base, a starting point of fiscal February.

And then any thoughts about April there?

Yes. To Frank's point, we saw truck revenue per load probably peak in the middle of fiscal March and then starting to slide on us a little bit. To Frank's point, in fiscal April, week 1 to week 2 truck revenue per load improved week 2 to week 3 and improved such that we don't have April close, but our best guess is that we will be maybe flattish from March to April, and that compares with a historical plus 100 basis point for truck revenue per load historically from March to April.

Okay. That's helpful. And then Frank, just bigger picture, right? If you look net revenue is coming back to where it used to be pre-pandemic, but the cost structure is just so much higher. Is there anything you could do or any initiatives to meaningfully reduce cost, one. And then secondly, we've had a view that there should be an opportunity to meaningfully accelerate the pace of buyback here. Any thoughts on that in your new role?

Yes, for sure. And all good questions, as always. So on the cost side, it is always going to be something that we're focused on. As JT went through the math, especially in the first quarter year-over-year, I mean, we are very disciplined on headcount. What you're really seeing are selective investments that are driving the year-over-year change, whether that's on the depreciation side or adding some selective positions in those strategic areas that we called out on the phone. Technology is always going to be an area that we continue to invest in. Our job is to support the agents and the BCOs and the carriers out there. So there's no initiative to really go hard at cost right now. It's more around the growth side of the equation. We think we're going to come out stronger when we start to inflect. I think we're in good position there. The sales organizational changes are going to be helpful there. We do have some real focus on things like the cross-border Mexico as well as heavy haul. And those are areas where we have a scale business already and we can focus on those areas that are more, I'd say, secular growth in nature rather than cyclical. And then on your buyback question, obviously, we're just getting started joining mid-quarter. We've got a pristine balance sheet, as you know, and it's wonderful to inherit that from Jim Gattoni. The company has really had a long and successful history of returning cash to shareholders, and that's not changing. The company has been very selective about when it's in the market, and we're going to continue to evaluate where we are in the market on a price basis practically every day. Being patient clearly has its advantages. You look at where we traded in the first quarter between about 180 and 200, and obviously, it's come down since then for a lot of different reasons, including what the Fed is going to do. We want to be great stewards of the shareholders' money. So we're going to be selective in the market, but we are going to return capital to shareholders.

We will move now to the next question coming from the line of Tom Wadewitz of UBS.

Yes, welcome back to the transports, Frank. It's nice to talk with you again. What are your thoughts on the dynamics involving agents and BCOs? I believe you mentioned that the decline in BCOs is tapering off a bit. Do you think this indicates that spot rates are bottoming out? What are your expectations for the dynamics moving forward, particularly concerning the BCO count and the Million Dollar Agent count as we look ahead to the second and third quarters?

Tom, great to hear from you again as well. I think the first impression I would give you on the agents and the BCOs, I mean, these folks are awesome. They're out there scratching every day on the agent side to go sell the extra load of freight, and the BCOs are there to haul an extra load for us. It's been great to see just the resiliency of the folks out there. The fact that they're all commission-based on the agent side and loaded based on the BCO side means these folks are putting dinner on the table load by load. In terms of the Million Dollar Agent count, I mean it was down year-over-year just because of the rate environment. I think as the rates inflect, that number will go up on a full year basis. Certainly, the exit rate if the rates operate with us will be higher this year than it was at the end of 2023. Among the BCOs, one of the things that's really important, and Joe can get into the numbers. Even though the BCO count effectively declined in line with where volumes went, the actual productivity of the BCOs went up. They hold more loads per person than they were doing last year. So that tells us they are out there scratching for every load.

Yes, Tom. So in the first quarter, net declines were about 10% better than the fourth quarter. So we are seeing some improvement there. To Frank's point, utilization loads per truck per week for BCOs was up 3% in the first quarter. That was flat in January, 6% better in February, and then 4% better in March. So we kind of like the trend that we're seeing there. And that continues to move in the right direction through April. It is a function of just loading opportunities and rate. We think we'll see the BCO count come back as volumes and rates return to a more favorable state.

Do you think that you'll see good responsiveness on that? Or do you think it's going to be tougher to add BCOs if you have a gradual improvement in rates?

I believe they will recover, and our past experiences support this. Looking back at previous downturns, in 2017 going into 2018, we added 250 trucks in 2017 and over 900 in 2018. Although we faced a decline of about 130 in the first quarter of 2020, we ended up adding a net of 748 for the entire year, and in 2021, we added approximately 870. This model demonstrates that when opportunities arise, many operators gravitate towards Landstar, and I don't see this as different now. We're simply awaiting that turning point. As capacity exits the market and conditions improve, we remain a preferred choice for owner-operators seeking independence and self-sufficiency. I believe the recovery will be gradual as rates and volumes rebound. They will return; the concern isn't systemic but rather about the timing and pace of the recovery. We are eager to see that happen swiftly.

We will move now to the next question coming from the line of Jon Chappell of Evercore.

I want to circle back to February and March, especially. Jim, you noted February was 8% good guy to the model marks at 3.5%. That is very contrary to everything we've heard throughout this earnings season for the last 1.5 weeks. Is there any way you can dig a little deeper on where the relative outperformance came from and how things changed positively when it seemed to be changing negatively for most of the rest of the industry post the January conference call?

In February, the most significant positive news was that truck revenue per load increased by 60 basis points compared to January. Historically, from 2015 to 2019, we typically saw a decline of 220 basis points during this period. Additionally, truck volume exceeded seasonal expectations. I want to emphasize that this trend was evident not only in revenue but also in the net revenue from our brokerage operations. Between the fourth quarter of 2023 and the first two months of 2024, our net revenue margin decreased by 105 basis points, but it then improved by 85 basis points in the final five weeks of that quarter. This pattern aligns with the weaker top-line performance we experienced compared to pre-pandemic seasonal trends, starting from a challenging position in February.

Okay. And then I don't want to, again, extrapolate the last couple of weeks or whatever. But if you were kind of a real good guy in February, March, and people are looking for green shoots, sounds like maybe February was a little bit worse in the back half, but to typical seasonality, but April a little bit better. Are there any signs that you're seeing that there's really a more sustainable uplift in demand? A more accelerated removal of capacity that's putting a floor below rates? Or do you think that this is pretty specific to your business model and customer base?

Yes, John, let me take a shot at that one, and it harkens back to the conversation we were having with Scott a moment ago. We are watching this closely. We've got areas that are doing quite well relative to the broader market and relative to the corporate average. We've got other areas like power-only and some of the 3PL business that aren't doing as well. You would expect that kind of cyclical side of things to be really good in good times and more difficult in more difficult times. When I look at the commodity groups that are performing well in April, they include the automotive business, metals, electronic packaging, and building materials. I mean these are more on the industrial side of the economy and have a more secular growth dynamic. Data centers, wind energy, electronic vehicles, things like that. We are very well positioned to do well in those markets. These are sort of our sweet spot. We see these segments doing well. I think they are reflective of early cycle; how early is a good question to ask. The consumer durable side is still not where we'd like it to be. Our view is that there was a fair amount of durable goods that were pulled forward during the pandemic, and that has to get back to equilibrium before we see a positive turn.

No, Frank, you hit the nail on the head. We are watching very closely. We received a little bit of Easter impact that was a headwind at the end of the first quarter, tailwind in April, and we're carving that out and we're looking. From our vantage point, we're reasonably in line on the volume side, and revenue per load is just ticking a little bit below.

We will move now to the next question coming from the line of Bruce Chan of Stifel.

Just want to come back to some of the comments that you made around cross-border. I know it's still early days there, but maybe you can help us to quantify the size of that business now relative to the opportunity? Or what kind of growth you've seen there?

Yes, Bruce, on cross-border. The important thing is we were an early mover in cross-border. We built the facility we call LMO, which is a cross-docking facility with a yard and actually, we have a big crane down there, we call that LFS. It's a really slick facility. Our customers and agents really like that. We've got a shuttle service that goes across the border. We've got a small intra-Mexico carrier called Metro. We're well positioned in that environment. Clearly, we're trying to capitalize on near-shoring. We have a solid facility down there. We're going to continue to look for opportunities to grow that business and to introduce more agents to help us sell cross-border. We think it's a good business. We are already a scale player here, so it's really about taking business that's performing well and thinking about ways to grow.

Yes, thanks, Frank. In terms of revenue performance, it was down about 14.5%. Our cross-border revenues in 1Q '24 versus 1Q '23 were about 400 basis points better than what we saw at the core.

Yes. Last year, we did a little over 600 million. We are looking to move to almost 200,000 loads across the border this year. It's a tremendous facility that serves us well. It provides for a great transloading environment to take advantage of the imbalance in the cross-border business. There's a lot more northbound than southbound. We've got a solid core Mexican group of carriers that help us service the interior. We have a dedicated sales team now working on developing opportunities south of the border, as well as some agent development initiatives, trying to train up and bring agents up to speed on the core capabilities we have, and a multitude of crossing points across the border. This is really going very well. We consider that a strength we have that we will continue to lean on to grow in what we think is a great opportunity, not only in '24, but into the future.

We will move now to the next question coming from the line of Stephanie Moore of Jefferies.

I wanted to circle back on a prior question talking about the cost structure and some select investments that you called out. If you could maybe kind of expand a little bit on those. You called out some sales organization changes. You just mentioned having a dedicated sales team to go after cross-border. If you could expand on that more and just key areas of investments, which I think are clearly you're trying to position yourself well for the upturn. But I would love to get a little bit more color there. And then say maybe on the cost side, areas where you're taking some quick actions to take costs out of the business.

Stephanie, thanks for the good questions. Let me do them in reverse. We are looking hard at every position that comes open, whether we need to fill it, whether we need to fill it right now, whether we can wait until we see additional volume inflections. I give a lot of kudos to JT in managing things. The whole leadership organization understands that we're in a freight recession. It's been a couple of years of difficult circumstances. We're being very judicious about filling positions that have some volume variability to them. In terms of strategic investments, I believe that when a company embarks on a strategy, it needs to align all things, including capital and human capital resources to bring those strategies to fruition. Strategic initiatives like cross-border and heavy haul are areas where we will be investing both capital and people to ensure that we can deliver the value we think is there. We're not talking about large dollars or large numbers of people, but we're adding salespeople into cross-border. We're adding salespeople and some leadership positions in heavy haul; these are important decisions. Remember that the headquarters environment within Landstar is quite small relative to the agents. We're investing there to educate them and to provide the tools they need and to open some doors with customers that can help us enter that business more fully.

Stephanie, we've kind of got a mantra that we attribute to cross-border, and that is Mexico made simple. Over the years, we have worked to simplify it so that agents aren't intimidated or reluctant to bring it up with the customer. We have over 500 agents of our 1,100 that will do cross-border shipments last year. So what we're trying to do is just deepen their understanding and increase their confidence in doing so. From an investment standpoint, we continue to put shuttle trailers down there that allow us and our Mexican carrier partners to utilize those trailers and provide seamless service across all the gateways. We are trying to do several things.

On the technology side, we may not have marketed nearly as much to the investment community as others have done, but we think it's not a single-legged stool. It's not just technology; it's also about the brand, the scale, the relationships, the safety, and the security. It's all of those things wrapped up together, not just a bunch of people sitting in front of a computer trying to do business in a digital manner. One of our priorities will be technology investment inside the building, where we still do some things that are more legacy-related. Call center modernization is an area we're talking about for us inside the building. We've done a lot, and I give Jim Gattoni credit. His tenure has been marked by putting great technology and tools in front of the agents and BCOs. We are coming to a maintenance mode over the next few years, and we will start to reinvest inside the building.

We will move now to the next question coming from the line of Daniel Imbro, Stephens Inc.

This is Joe Enderlin on for Daniel. Just wanted to ask about the cadence of the variable contribution margin. Could you maybe talk about how the exit rate compared to the beginning of the quarter, and where have you seen that trend during April?

Yes. We put out a variable contribution margin guide for the first quarter of 14.5% to 14.7%. Clearly, with revenue being a bit more brokerage in there and spreads compressing more than we would have anticipated, we missed the low end by 13 basis points or so. As we move into the second quarter, that calls for sequential load volume that's going to be handled via third-party trucks given what we're seeing in truck count; you've got kind of embedded mix headwinds. We did bake in a little bit more anticipation of spread compression similar to what we saw third quarter to fourth quarter, fourth quarter to first quarter. As such, the guide calls for a very close to normal seasonality for the variable contribution margin expectations for Q2.

Got it. Makes sense. As a follow-up, it sounds like you guys are seeing an improvement in industrial end markets and commodity groups. Do you have any thoughts on when you expect consumer durables demand could pick up? Or have you seen any green shoots of improvement there?

Yes, it's a good question. It is getting a little bit better, but it's off of an awfully low base. I think it's going to come down to the consumer, who has had a lot of opportunities in the last couple of years, given COVID has kind of relented. The first two years of the COVID period were spent on things at home and renovations because you couldn't travel or go out. I think we're now in that period where folks are pivoting towards more services or going out to dinner instead of focusing on renovations. We've got to go through the pull-forward effect a little bit. I still think we're several quarters away from seeing that come back to equilibrium.

We will move now to the next question coming from the line of Bascome Majors of Susquehanna.

Jim, on your current outlook, can you just tell us how much is embedded in the full year accrual for variable compensation, including the share-based piece? If you return to growth in 2025, how much needs to come back to get you back to that level?

Based on my nine-plus-three estimate, I anticipate about a $15 million to $17 million headwind in full year '24 versus '23. If you're looking at '25 versus '24, I'd say at the threshold, you'd expect about a $1 million tailwind given some of those transition costs included in the first quarter of '24 that won't repeat in FY '25.

And Frank, welcome back. High level. I know you've only been here less than three months, but this is a business that has done really well for stakeholders and shareholders by doing things similarly for a long time. The cycle has challenged things in a way we haven't seen before. Structurally, as you come in with a fresh perspective, do you see any pieces of the model that could be tweaked? I don't know how they relate with agents or how you compensate BCOs. Anything where you might be able to turn some norms around the dials and generate the growth we've historically seen for the next 10 years?

Bascome, nice to hear your voice, and I look forward to connecting with you later in the year. I'd say the early impressions, and again, it's only been a little less than three months. The model is an extremely powerful one. It's unique and resilient. It obviously has attributes that are wonderful and have been wonderfully successful, the tech enablement, the asset light structure, and the strong cash flow. You're harnessing the power of literally thousands of people who put food on the table every day through the agent and BCO community. There's certainly a mantra to do no harm to the model. In terms of the future, I'd say it's evolution, not revolution. It's finding ways to take advantage of an already good company and improve it. It offers a fresh set of eyes on everything we do and a belief that we can do better. The themes that you're hearing are how can we accelerate the model and how can we focus on some of the strategic investments? You heard us talk about cross-border and heavy haul; these won't be the last two areas we focus on. These are just the first. I will be looking at secular shifts through a bit of a follow-the-money strategy. When you think about things like near-shoring, that's clearly an area we want to play in. Infrastructure, whenever that money unlocks from the government, that's an area that fits well with heavy haul. Other areas include green energy and the power generation needs of the country, especially with AI and data processing, and mining for cyber currency. There's a significant amount of power required for that, which means alternative energy sources need to be available, as well as data centers for all the computing power needed. These are all things we do extremely well, and we will be looking for secular opportunities and investing the capital and people to unlock them.

We will take the last question coming from the line of Uday Khanapurkar of TD Cowen.

This is Uday on for Jason Seidl. Can you talk a little bit about the rate environment, specifically in the unsided market? I believe flatbed spots had a better quarter than van, but I'm wondering, are we seeing a different capacity dynamic in that part of the market?

Uday, I think one of the things we talked about was the platform environment holding up better than the van environment. Some of it is simply the supply-demand dynamic in that area. There are fewer flatbeds than there are vans out there. This area supports heavy haul as well. It's one we have been focused on.

Yes, absolutely, Frank. As I mentioned, there was a bit of a mixed bag. We saw increased demand for the heavy haul service offering; plus 2% on loadings and down 1% revenue per load. If you strip out the heavy haul impact from the unsided platform category, you go from a down 1.7% as reported year-over-year to down 4.2% without heavy haul.

That's very helpful. I guess just as a follow-up, on the year-on-year truckload guidance, looking at the model, it implies a modest sequential uptick or even slightly down at the low end. I'm wondering how that guidance measures relative to normal seasonality on a sequential basis.

I'm sorry, can you clarify the guide concerning anticipated operating margin for the second quarter?

The truck loads down 5% to 9% year-over-year.

Relative to seasonal.

Year-over-year, it's slightly below. On a sequential basis, we called for 4% to 8% tailwind from Q1 to Q2, so call it 6 at the mid, lagging by a point or two compared to what we would define as a normal seasonality.

At this time, I show no further questions. I would like to turn the call back over to you, sir, for closing remarks.

Thanks. In closing, while the freight environment remains challenging, we see some positives in the near term. We expect the 2024 second quarter to deliver Landstar's first quarter-to-quarter sequential revenue increase since the second quarter of 2022. We are encouraged that truck revenue per load seems to have stabilized at a level well above pre-pandemic norms and truckload volumes appear to be trending reasonably in line with pre-pandemic normal seasonal patterns, which is potentially a positive sign for the rest of 2024. Regardless of the economic environment, the resiliency of the Landstar variable cost business model continues to generate significant free cash flow. Landstar has always been a cyclical growth company, and we are well positioned to navigate these dynamic times and look forward to higher highs when the freight market turns our way. Thank you for joining us this morning. We look forward to speaking with you again on our 2024 second quarter earnings conference call in July. Thank you.

Thank you for joining the conference call today. Have a good morning. Please disconnect your lines at this time.